MassMutual Sued Over Stable Value Fund Fees

The lawsuit is filed as a class action on behalf of the Arthur J. Gallagher & Company 401(k) plan and all other similarly situated plans.

A 401(k) plan participant has filed suit against Massachusetts Mutual Life Insurance Company, alleging the firm collects tens of millions of dollars annually in undisclosed compensation due to the way it values the crediting rate for stable value funds offered to 401(a) and 403(b) retirement plans.

According to the complaint, MassMutual markets a number of stable value funds, or SVAs, to retirement plans, each of which utilizes group annuity contracts issued by MassMutual. The contracts periodically credit a certain amount of income to retirement plans and the participants in such plans who invest their retirement plan accounts in SVAs. This income, generally expressed as a percentage of the invested capital, is determined pursuant to a crediting rate. The crediting rate varies in that in each crediting period, MassMutual sets a crediting rate for all money added to its SVAs in that period.

The lawsuit says MassMutual has the sole and exclusive discretion to determine the crediting rate for a given crediting period. MassMutual sets the crediting rate well below its internal rate of return (IRR) on the invested capital it holds in the SVAs, creating a substantial profit for itself, according to the complaint.

The lawsuit also alleges that MassMutual does not disclose to its retirement plan clients and their respective participants the difference between its IRR and the crediting rate, and that it collects tens of millions of dollars annually in undisclosed compensation from the retirement plans and participants in violation of the Employee Retirement Income Security Act.

In a statement to PLANSPONSOR, MassMutual said: “MassMutual Retirement Services has a long history of delivering exceptional products and service to retirement plans and their participants.  MassMutual regards the Bishop-Bristol complaint as meritless and will vigorously defend against it.”

The complaint is here.